Eight Critical Success Factors For Improving Strategy Execution – Part 2 of 4
With successful strategy outcomes continuing to be an elusive prize sought by so many corporate leaders, this four-part article series is focused answering those questions by exploring eight critical success factors related to improving strategy execution. In Part 1 of this article series, the first two critical success factors (CSF)s for improving strategy execution were provided and explained. In this segment, CSFs #3 and #4 are discussed. While they may seem misleadingly simple on the surface, these two can be tricky and continue to cause many companies problems. Read on to learn why.
CSF #3: Align strategy with mission, operational tactics and business processes
If organizations cannot succinctly explain what they do, how will their marketplace consumers understand it? An organization’s mission statement must be defined broadly enough to allow room to maneuver, yet be direct and purposeful in defining the market(s) served, the products and / or services provided by the firm and the distinguishing characteristics of those offerings.
Let’s look at Target’s mission statement as an example and then break it down into parts.
Target’s Mission: “Our mission is to make Target the preferred shopping destination for our guests by delivering outstanding value, continuous innovation and an exceptional guest experience by consistently fulfilling our Expect More. Pay Less.® brand promise.”
What are the key elements?
- Market Served: economy and quality minded shoppers
- Contribution: exceptional guest experience
- Distinction: outstanding value, continuous innovation and an exceptional guest experience by consistently offering more for less
This same information must align with the strategy of the organization. Strategies are broad in scope, but should also be capable of being summed up in strategy statements that employees will understand and embrace. A strategy statement, while being simple in structure, must also anticipate the need for adaptability. Too much specificity in the statement will undermine flexibility down the road.
At a minimum, for strategy to yield competitive advantage, it must address three key questions:
- “What do we do?”
- “Who are our customers?”
- “How do we do what we do better than our competitors?”
The aligned strategy statement “shell” for one of Target’s brands might be stated as follows:
“Our strategy is to _____ by offering _____, at a cost that brings value to our customers unmatched by our competition through ___ and ____.”
Note the alignment of elements in the mission and strategy:
- Contribution = “What do we do?”
- Market Served = “Who are our customers?”
- Distinction = “How do we do what we do better than our competitors?”
The best way to ensure alignment between strategic goals and operational capacity is to face realities during planning and do not allow over zealousness projections to take over.
- Do our internal systems have the ability to support goal achievement?
- Will suppliers, distributors and partners be able to keep pace in support of goal attainment?
- Can our managers and employees step up to the added workload an pressure we will be asking of them?
Strategies should follow a simple alignment rule related to business core competencies. Compete where you have an advantage, otherwise do not. Do the skills and knowledge exist in the right levels within the organization to accomplish the strategic goals? In strategy development, the question of “what should we do” is a corollary to the “what we do” question. This perspective relates to building competitiveness in your offering and exploring tangential markets that might be exploited, provided that the barriers to entry are not too high and organizational capabilities match the opportunities being evaluated. Truly gauging core competencies is key to ensuring alignment exists in this area.
Operations-level planning describes the tactics of execution, correlating strategy to action. Misalignment often occurs here, primarily because companies skip over operational planning altogether or do a poor job of paying attention to details.
The goal of the operational planning is to create realistic and comprehensive work breakdown structures (project plans) for the work entailed in all identified initiatives related to the strategic goals of the client. Additionally, accountability and responsibility structures get established at the initiative and project levels when operational planning is done correctly. This activity has an important alignment to budgets, as it affects resource plans, infrastructure and schedules that might have downstream consequences to sales, marketing and other functions.
Business process and strategy execution go hand-in-hand, but natural alignment between strategy and process cannot be expected to occur on its own. Processes must support business goals, integrating organizational capabilities that enable the business to deliver consistent customer value while keeping pace with demands of the strategy.
For instance, a strategy calling for the introduction of new products in a growing market segment may require outsourcing, more modularity and improved standardization in order to meet the goals specified in the strategic plan. There are massive business process implications to each of these. Likewise, acquisition strategies must be thought through in terms of business process congruence and integration. Many organizations fail to do so, compromising much of the expected value from their strategic acquisitions and yielding unintended consequences.
CSF #4: Align strategic goals with metrics, measures
Closely linked to business process considerations are the metrics and measures of process effectiveness. Again, this relationship forces a close alignment with strategy – more specifically with the strategic goals related to the strategy.
Not all strategic goals are going to be financially oriented, in fact they should not be. Regardless, they must still be quantifiable and ambiguity must be stripped away from the goal statements and replaced with clear and concise wording.
Use of a controlled vocabulary in goal statements is a helpful technique to get the plan on good footing. Restricting language to the use of “minimize”, “reduce” or “increase” statements with specific percentages or amounts will accomplish this task. Metrics can then be associated with time-frames to accomplish, then measured for management to track progress.
The relationship of strategic goals to metrics and measures can be tricky. For instance, a strategy might have a strategic goal related to “increasing productivity by X% over X quarters” and another related to “increasing profitability by X% over X quarters”. Setting the wrong metrics might help accomplish one goal, but simultaneously compromise the other. How?
Assume the following:
- Volume metrics for production are encouraging managers to seek higher labor productivity
- The contribution of labor to profitability is 10%
- The contribution of materials to profitability is 60%
In this case, a 10% increase in labor productivity will create a decrease in material management efficiency – as inventory levels must increase to address the volume change. That could easily translate to a materials efficiency decrease of 2% or more to support the 10% labor efficiency increase.
Give the profit contribution assumptions above, the net result is as follows:
- a 10% labor productivity improvement times 10% profit contribution equals a 1% profitability increase
- a 2% materials productivity decrease times 60% profit contribution equals a 1.2% profitability decrease
As you can see, net profitability actually decreases when high volume production is encouraged by metrics misalignment – compromising the strategic goal of “increasing profitability by X% over X quarters”.
The Next Segments
In the upcoming segments of the article series, more of the eight critical success factors will be introduced and discussed.
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